Setting up a family trust can protect financial assets for heirs and beneficiaries. A family trust provides many benefits for family members and acts as an instrument to pass assets along to future generations.
What is a Family Trust?
A family trust is used to pass assets on to family members or other beneficiaries. It’s typically set up as part of an estate plan by an estate planning attorney. A family trust is established by the person who owns the assets and managed by a designated trustee. Once the trust is established, assets are transferred into the trust, providing various benefits and tax advantages. By transferring significant financial assets from personal ownership to ownership by the trust, the owner helps ensure that assets are protected from various threats, such as claims made by business and personal creditors or ex-spouses or partners. A family trust also helps to avoid probate problems.
Establishing a Family Trust
A family trust, also called a revocable living trust, is established with a legal contract drawn up by an estate planning attorney. The contract, called a trust deed, defines the terms of the trust and names the trustees and beneficiaries. The person who establishes the trust is called a settlor, and he/she can also act as a trustee. Almost any assets can be transferred to a family trust, including real estate, motor vehicles, boats, valuable artwork, household furnishings, and company shares. Key elements of a family trust include:
- Settlor – The person who establishes the trust and owns the assets. With a married couple, both spouses may be settlors.
- Trustees – The person or persons who are responsible for maintaining the trust. Trustees must make sure that the wishes of the settlor are carried out per the trust deed, as part of the estate planning process.
- Beneficiaries – The beneficiaries in a family trust will typically include members of the family, including future family members such as children and grandchildren.
- Trust Deed – The legal document that defines the terms of the trust and the settlor’s wishes is referred to as the trust deed. This deed names the beneficiaries and appoints the trustees, stating their powers and duties for administration.
- Trust Assets – When a family trust is set up, it must contain assets, even if minimal. The goal is to eventually transfer all significant assets into the trust.